NASD to charge ex-analyst Blodget

BambiFrancisco

NEW YORK (CBS.MW) -- Henry Blodget, best known for an audacious but market-moving call on Amazon.com at the height of Internet euphoria, will face formal action by the National Association of Securities Dealers.

A person familiar with the situation told CBS.MarketWatch.com that a complaint against the former Merrill Lynch analyst was forthcoming.

Blodget did not return a call seeking comment, and the NASD refused to provide any details of the expected action.

The last time the NASD took action against an analyst was when it filed a complaint against Jack Grubman last September in its investigation of conflicts of interest on Wall Street. At the same time, the NASD fined his employer, Citigroup unit Salomon Smith Barney, $5 million for issuing "materially misleading research reports in 2001 on Winstar Communications.

By December, Grubman had agreed to settle allegations of securities violations by paying a $15 million fine and accepting a ban for life from operating in the securities industry.

Grubman was at the center of the scandals over conflicts of interest between analysts' stock recommendations and their firms' investment-banking activities.

Blodget left Merrill Lynch
MER, -0.93%
as its Internet analyst in November 2001, well before the investigation into Wall Street research bloomed in 2002. At the time, Blodget, then 35 and recently married, said he intended to write a book about the Internet bubble. See prior story.

But the analyst remained in the spotlight after New York Attorney General Eliot Spitzer unveiled dozens of incriminating e-mails from Blodget and his team. In those e-mails, Blodget derided Internet stocks he publicly supported as good investments. The $100 million settlement that Merrill Lynch eventually paid became the basis of the $1.4 billion fine that Wall Street firms collectively agreed to pay last month to settle the conflict-of-interest scandal. See NASD release.

The famous 400 and subsequent matters

Blodget put a $400 price target on Amazon
AMZN, +0.18%
in December 1998 while working at CIBC Oppenheimer. Jonathan Cohen, who was then Merrill's Internet analyst, predicted Amazon could fall as low as $50.

Amazon did indeed top $400 -- unadjusted for subsequent stock splits -- just a few weeks later. Shortly thereafter, Cohen left Merrill, and Blodget got his job.

Blodget took criticism as the Internet bubble collapsed for maintaining positive ratings on stocks even as they lost most of their value, and investors taking his advice were devastated. In July 2001, Merrill Lynch paid $400,000 to a former client to settle allegations he was misled by overly optimistic research by Blodget.

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